Monday, March 21, 2011

The return of Financial Dividends

The financial crisis of 2007-2009 was particularly painful to investors with an allocation to dividend rich financials. Not only did share prices collapse, but the dividend payments were slashed or eliminated as many financial institutions received funds from TARP. The big news Friday was that the federal government gave its blessing to several large institutions to finally raise distributions to shareholders.

The institutions include US Bancorp (USB), Wells Fargo (WFC), JPMorgan Chase (JPM) and State Street (STT).

US Bancorp (USB) raised its quarterly distribution from 5 to 12.50 cents/share. This is still below the 42.50 cents/share payment that the bank was paying before the dividend cut. Yield: 1.80%

Wells Fargo (WFC) raised its quarterly dividend from 5 to 12 cents/share. The company paid 34 cents/share before joining the crowd of dividend cutters in March 2009. Yield: 1.50%

State Street (STT) raised its quarterly dividend from 1 to 18 cents/share. I sold my position in the stock right after the dividend cut in 2009. In retrospect I could have held on to it, but given the fact that most dividend cutters in 2007 and 2008 ended up going bankrupt this was not an unreasonable decision. Yield: 1.60%

JPMorgan Chase (JPM) raised its quarterly dividend from 5 to 25 cents/share. Back in February 2009 the company cut its dividend from 34 cents/share to 5 cents/share. Yield: 2.20%

The future of financial dividends is still unclear, as it would be largely dependent on the growth in earnings in the current environment. I would definitely wait to see where distributions go from here. I also require at least a decade of consistent dividend increases before initiating a position in a stock, which is why I would be looking elsewhere for financial dividends for the next few years.

I have also highlighted consistent dividend raisers from other sectors which announced their intentions to boost distributions below:

Air Products and Chemicals, Inc. (APD) provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide. The company raised its quarterly dividend by 18.40% to 58 cents/share. This marked the 29th consecutive annual dividend increase for this dividend aristocrat. The stock currently yields: 2.70% (analysis)

Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. The monthly dividend company raised its quarterly dividend to $0.1445625/share. This dividend achiever has consistently raised dividends since going public in 1994. The ten year annual dividend growth rate is 4.50%. Yield: 5% (analysis)

Williams-Sonoma, Inc. (WSM) operates as a specialty retailer of home products. It offers culinary and serving equipment, including cookware, cookbooks, cutlery, informal dinnerware, glassware, table linens, specialty foods, and cooking ingredients; and bridal and gift items under the Williams-Sonoma brand name. The company raised its quarterly dividend by 13.30% to 17 cents/share. Williams-Sonoma has raised distributions for six consecutive years. Yield: 1.70%

Xilinx, Inc. (XLNX) engages in the design, development, and marketing of programmable logic solutions. The company raised its quarterly dividend by 18.75% to 19 cents/share. Xilinx has raised distributions for eight years in a row. Yield: 2.40%

Air Products & Chemicals (APD) was out of my buy range before the dividend increase. After the generous distribution hike it fits my entry criteria nicely. I would look forward to adding to my position in the stock when I have the funds available. As far as Realty Income (O) is concerned, many investors have been disappointed with the anemic increases in distributions over the past 2 years. Luckily yield hungry investors have been bidding the stock price higher, which has increased total returns for earlier investors in this real estate investment trust. The main reason why I view Realty Income as a hold and not a buy is that the stock is not yielding as much as it used to and its dividend growth has been pretty much non-existent over the past 2 years. I would consider adding to my position in the stock on dips below $29 however.

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